My family and I could have been set for life. Instead, due to my inability to beat back real estate FOMO, I blew up our passive income. And because our passive income is now much lower, we are no longer financially independent.
Desire is the cause of all suffering. Due to my desire to own a nicer home, I sold stocks and bonds. By doing so, I lost about $150,000 a year in passive income for the foreseeable future.
In 2023, my passive income was tracking to generate about $380,000. However, by buying a real forever home this time, my passive income is estimated to decline to about $230,000 in 2024. Sadly, $230,000 is not enough to cover my family’s living expenses.
Due to purchasing a new house, I lost about five years of progress while taking on more financial responsibilities. Ugh, writing this hurts.
Alas, since starting Financial Samurai in 2009, I’ve always shared the ups and downs. Whatever you expect to happen in the future will likely be different. So stay on your toes!
This post is especially interesting for future or current parents thinking about how to juggle growing a career, raising a family, and retiring comfortably in the future. As a father, it also highlights the pressure of being a provider and the sacrifices one must make for his family.
I’m not asking for sympathy or empathy. All I’m asking is for you to read with an open mind to better prepare yourself for an unpredictable journey. I could just write about how life is always great. But that’s unrealistic, and frankly, annoying to read.
At the end of the day, you must do what’s best for your family.
Thought Long And Hard Before Losing My Financial Independence
If you subscribe to the Financial Samurai podcast (Apple or Spotify episode discussing the dilemma), you know I’ve thought long and hard about whether it was the right move to buy this house. At first, my wife was against it since we were happy in our old house. But over time, she came around to the idea.
Ultimately, I decided to blow up my passive income due to the following reasons:
- The house rocks partly because it is on a triple-wide lot with a view and is 100% recently remodeled
- I believe the best time to own the nicest house you can afford is when there are the most number of heartbeats at home
- As a father, I want to give my family the best life possible
- I’m bullish on artificial intelligence driving San Francisco real estate prices higher
- We’re past the bottom of the latest real estate downturn
- I have a plan to return to work and want motivation to fulfill the plan
- I believe I’ll be able to regain financial independence over time
Actions have consequences. We must own up to the results, deal with the repercussions, and continue forward.
Household Expenses Going Up
Starting in September 2024, when our daughter attends preschool full-time, I estimate our monthly expenses will grow to $24,033 a month, or $288,396 a year. Until then, our expenses are closer to $22,000 a month, or $264,000 a year.
To generate $288,396 a year after tax requires a gross household W2 income of about $400,000 using a 28% effective tax rate. Or if we want to stay unemployed, we need to earn about $379,000 in gross investment income using a 24% effective tax rate given investment income is taxed lower.
If we hadn’t bought a new house, we were all set to have our $380,000 passive income pay for all our expenses this year and next. But now we’ve got a gaping hole.
No Longer Financially Independent
Our once $380,000 in passive income at a 24% effective tax rate would have generated $288,800 in net income. That was enough to cover our $264,000 – $288,000 in annual expenses and save.
However, now that our passive income has been reduced to about $230,000, using a 24% effective tax rate, I’m left with only $174,800 in net passive income. $174,800 is $90,200 short of my existing annual expenses and $113,200 short of my Fall 2024 future expenses.
As a result, after twelve years of financial independence, I’m sad to say I am no longer financially independent. And you know what? It’s a little depressing.
Definition Of Financial Independence
My strict definition of financial independence is when your passive income covers your basic living expenses. The more you desire, the more you will need and vice versa.
Being financially independent doesn’t include having a working spouse, making side income, or running a business to pay your bills. That’s all active income activity. Contrary to what some people believe, my articles don’t write themselves, not even with AI. No writing, no online income.
Below is my estimated 2024 passive income streams by investment type. Every line item should be…
Read More: Blew Up My Passive Income, No Longer Financially Independent